|3 Months Ended|
Jun. 30, 2020
|Income Tax Disclosure [Abstract]|
The Company’s provision for income taxes for the interim period ended June 30, 2020 was prepared using a discrete effective tax rate method. Historically, the Company calculated its provision for income taxes during interim reporting periods by applying the estimated annual income tax rate for the full fiscal year to income from continuing operations, excluding discrete items, for the reporting period. The Company determined that since small changes in estimated pre-tax income or loss would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate of income taxes for the three months ended June 30, 2020. The Company will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted. The Company’s effective tax rate was (4.8)% and 8.4% during the three months ended June 30, 2020 (Successor) and June 30, 2019 (Predecessor), respectively. The effective tax rate in the three months ended June 30, 2020 (Successor) includes the impact of utilization of net operating losses in certain foreign jurisdictions and adjustment to its valuation allowances against future realization of deductible business interest expense.
The relationship between the Company’s provision for or benefit from income taxes and the Company’s pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, including asset sales, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) the Company’s geographical blend of pre-tax book income. Consequently, the Company’s income tax expense or benefit does not change proportionally with the Company’s pre-tax book income or loss. Significant decreases in the Company’s pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The change in the Company’s effective tax rate excluding discrete items for the three months ended June 30, 2020 (Successor) compared to the three months ended June 30, 2019 (Predecessor) primarily related to changes in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions and nondeductible professional fees related to the Merger. The three months ended June 30, 2020 (Successor) income taxes include a benefit of $15.8 million related to the bargain purchase gain and an expense of $3.9 million from the impairment of the Company’s investment in Líder. Additionally, the Company decreased its valuation allowances by $9.1 million and $0.3 million for the three months ended June 30, 2020 (Successor) and June 30, 2019 (Predecessor), respectively, which also impacted the Company’s effective tax rate.
Valuation allowances represent the reduction of the Company’s deferred tax assets. The Company evaluates its deferred tax assets quarterly, which requires significant management judgment to determine the recoverability of these deferred tax assets by assessing whether it is more likely than not that some or all of the deferred tax asset will be realized before expiration. After considering all available positive and negative evidence using a “more likely than not” standard, the Company believes it is appropriate to value against deferred tax assets related to foreign tax credits and certain foreign net operating losses. For the three months ended June 30, 2020 (Successor), the Company released valuation allowances of $3.3 million and $5.8 million related to net operating losses in certain foreign jurisdictions and deductible business interest expense, respectively. During the same period, the release of valuation of allowances resulted in a non-cash tax benefit of $9.1 million. In the three months ended June 30, 2019, the Company recorded a valuation allowance of $0.3 million against net operating losses in certain foreign jurisdictions.
The benefit of an uncertain tax position taken or expected to be taken on an income tax return is recognized in the condensed consolidated financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. Interest and penalties, if any, related to uncertain tax positions would be recorded in interest expense and other expense, respectively.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef